Ladies and gentlemen, welcome to the Lonza Q3 2024 Qualitative Update Investor and Analyst Conference Call and Webcast. I'm Sandra, the Chorus Call operator. I would like to remind you that all participants are in listen-only mode, and the conference is being recorded. The call will last for thirty minutes. After the short presentation, there will be a Q&A session. You can register for questions over the conference call by pressing star and one on your telephone. Please limit yourself to one question and then re-enter the queue in case you have a follow-up. In the webcast, we have a chat box, which would only be used if your question cannot be heard over the phone line. For operator assistance, please press star and zero. The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Philippe Deecke, Chief Financial Officer. Please go ahead, sir. Good morning, good afternoon, and a warm welcome to our Q3 qualitative update. These calls are intended to provide a general business overview, so we will not be sharing numbers relating to our financial performance. Instead, we will share full financial updates during our full year results call in January. Today, I will start by sharing a view on the group and our growth projects, then provide a short update on each division. We will then have time to take your questions. We reported a Q3 performance aligned with the full year trajectory and expect sales in Q4 to be higher, which is typical due to batch release timing at year-end. Despite the persisting pressure in Capsules and Health Ingredients, we are confirming our outlook 2024, with flat sales growth and Constant Exchange Rates compared to prior year and a Core EBITDA margin in the high twenties, which is 27%-29%. This guidance reiterates our position already explained at half year, where we will have higher absolute CDMO sales at a less high margin compared to H1. Remember that while sales would be higher in H2 than in H1, CER growth will be lower as we are lapping a high base in H2 2023, which included the COVID termination agreement with Moderna. Turning to our growth projects. Overall, we are making solid progress. At our site in Stein, Switzerland, construction of our large-scale commercial drug product facility is progressing well, and we are on track to start operations in late 2026. We expect to start commercial GMP manufacturing in late Q4 at our new highly potent API facility in Visp, Switzerland, with sales contribution set to increase significantly in 2025. Also in Visp, we are on track to commence technical operations at our large-scale mammalian drug substance plant in Q4. The site is fully contracted and will reach peak utilization by 2029. Due to customer demand, the facility will also house N-minus-one perfusion technologies. Full commercial GMP manufacturing will commence in H1 2025, with production ramping up over the course of next year. Due to the phasing of our spend, CapEx as a percentage of sales may be slightly below the initially guided 25% for the full year. A key driver for this is lower maintenance spending across the sites and some customer-driven changes in specifications. Now, let's take a look at each of our divisions in turn, starting with Biologics. There was good commercial momentum across the Biologics division, with a strong level of contract signings across the business over the year. Improvements in the biotech funding environment have resulted in an uptick in early-stage RFPs. This provides a promising sign for future overall pipeline growth and clinical demand in our Mammalian and Drug Product services businesses. Looking at selected business units, Bioconjugates saw strong growth, supported by the ramp-up of new assets. The Mammalian business unit saw good momentum from growth projects ramping up and strong operational execution in the base business. Our acquisition of the large-scale commercial facility in Vacaville, California, closed successfully on the first of October, and the integration is progressing well. We are seeing strong demand and continued contracting interest for the high-quality capacity in this asset. The site joins Lonza with a strong regulatory and quality track record and is well-positioned near the San Francisco Pharma and Biotech Hub. We will provide further financial details on the acquisition as part of our full year reporting in January. We can reconfirm that the P&L impact for 2024 is expected to be insignificant. Turning to our Small Molecules division, we continue to see strong commercial demand with good visibility, supported by high levels of committed business. The division is further supported by our continuing portfolio shift to high value and complex small molecules, and the strong growth of our highly potent API offering. Sales are expected to be higher in H2 versus H1 due to campaign timing and supported by strong operational performance. Looking at our Cell and Gene division, strong operational performance in commercial manufacturing is driving momentum in our cell and gene technology business. There has been continued customer interest in our commercial offering, and in Q3, we announced a long-term supply agreement with Vertex to manufacturing gene-edited therapy, Casgevy, for sickle cell disease and beta thalassemia. We expect a rising sales contribution from Casgevy over the course of 2025 and beyond. The agreement with Vertex is a representative of our ambition to increase the number of commercial products in our portfolio, and we expect to add further commercial molecules in the midterm. We are also encouraged to see the improved biotech funding environment is translating into an increased number of RFPs, but these are not expected to materially support revenues in the near term. Our BioScience business continues to experience market headwinds, which have impacted sales, but we are managing profitability through a strong cost discipline. Finally, turning to the Capsules and Health Ingredients division, we continue to observe softer demand for pharma hard capsules due to a continued destocking phase in line with the market. While the latest data on orders is encouraging, it points more to a recovery in 2025. In the U.S., demand for nutraceuticals has recovered after a long period of post-pandemic destocking. However, overcapacity makes this market more competitive. To mitigate market developments and protect margins, at least partially, the division has undertaken a cost management and productivity program alongside its continuing commitment to customer value. We also continue the rollout of our market-leading D90 manufacturing technology, which will improve our cost position. To close, I will summarize by saying that we are in line with the expected trajectory towards our outlook 2024. We remain well positioned to capture value by maintaining our focus on building our pipeline and growing our commercial offering, while managing our costs and continuing to drive operational excellence. Before I hand over to Sandra to host the Q&A, let me remind you that Lonza will host an investor update on December 12 2024 in Basel, Switzerland, where Wolfgang and I look forward to interacting with you in person. The event will cover a group strategy update, including priorities going forward. This reflects the work we have undertaken as a leadership team together with the board since Wolfgang Wienand started as CEO in July 2024. You can find all details and registration information on the Lonza website. With that, I would like to thank you for your time. Sandra, over to you. Thank you, sir. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on the touchtone telephone. You will hear a tone to confirm that you have entered the queue. Kindly limit yourself to one question. You can get back in the queue again for any follow-up question. In case of difficulties with understanding your question on the phone line, we will ask you to submit your question via the chat box in the webcast. First question comes from James Quigley from Goldman Sachs. Please go ahead. Great. Thank you for my questions. Hopefully, you can hear me okay. I just have a quick question on the Visp sites. Now that it's fully contracted, are you still confident in the peak sales, that peak sales in 2029 will fall within the CHF 1-1.1 average peak sales CapEx range? Also, to what extent are there uncertainties around some of these contracts? For example, are some, you know, late stage phase two or phase three developments, so could they still carry some clinical trial risk? And how should we think about the ramp-up towards peak sales in the, in the new Visp site? Thank you. Yes. Hi, James. Thank you for your question. So yes, happy to confirm that the site is fully contracted. We've had it contracted for a while now. Remember, this is a multipurpose asset, so you know, we can do a whole range of different maps in this facility. It will host as well N-minus-one perfusion, so even more versatile, so that we can really accommodate all type of molecules in there. So it is fully committed. I think if something would happen to any of the customers, you know, as usual, we would have time to backfill this as this is highly sought-after capacity. In terms of the ramp up towards peak sales, I think as you probably know from these large facility, you know, tech transfers will happen over time, and we will be introducing molecules over time as well. I think probably you can take our CMD 2023 description of how large-scale assets ramp up as a guide if you need to model. The next question comes from Charles Pitman-King from Barclays. Please go ahead. Hi. Thanks very much for taking my questions. Two quick ones, please. Just a clarification to start with. I think you mentioned that CapEx is expected to come below the originally guided target for FY 2024, due to changes in customer priorities. I was wondering if you could just give us a little bit more color on what those really look like. And then just secondly, how should we think about the impact to cell and gene therapy margins as a result of this contract with Vertex you've announced? Does that kind of de-risk what you've already stated, and is it in line or is it potentially incremental? Thank you. Yes, Charles. Charles, thank you. Let me take them in order. I think for CapEx, as we mentioned during our H1 call, you know, CapEx will be slightly below the 25% we guided. I think we're now confirming that this will be below. I think in terms of... I didn't say change priorities. I said change in specification of customers. When we build assets with customer needs or special customer needs, usually the companies are developing this with us. And so their process is not fully fledged, if you want. Then the scale up of this process into a full facility sometimes needs change. So when these changes happen, it basically pushes out a little bit the construction, and this is what happened in individual cases. So it's not priorities, it's specifications. In terms of Cell and Gene margins and the impact of Vertex, as we communicated back at our CMD and since then, is that the strategy really for Cell and Gene is to move more into a commercial portfolio. I think today, the portfolio is heavily weighted on clinical assets, and so we mentioned we want to have a you know a handful of commercial products over time, and this is one of them, and therefore, the margin and the sales contribution of Casgevy is part of the outlook that we provided back at the CMD. So this is part of the strategy. I think we're very pleased to be part of the Casgevy journey with Vertex, but this is not coming on top of whatever guidance we gave. Thank you. The next question comes from Thibault Boutherin, from Morgan Stanley. Please go ahead. Yes, thank you. Just a question on Vacaville. I know that you have closed the deal and you have the facility. Can you share some details on the timeline in terms of you know when you expect to generate first revenue from customers? And also, if you can share some colors on the volume commitment from Roche for 2025 and the capacity utilization. I think in the past, you shared a 30% capacity utilization figure, so is it still the right way to think about this? Yes, Thibault, happy to talk about Vacaville. Obviously, we're very pleased to have been able to close early in October, on October 1st. I think the integration is going well. I think the teams are now operating together between the site team and obviously our global team, so this is all going very well. We're very pleased with the continuation of the work. Now, in terms of financials, not much has changed obviously over the last three weeks. So for us, the utilization that we expect for next year is still around the 30% we communicated earlier, which would be exclusively based on the Roche demand for the site. You know, for the further out years, we will need to wait to get firm commitments from Roche. So, we're still waiting for the firm commitment from Roche. This should come later this year, but for now, the assumption is the 30% we mentioned, which leads to the numbers we've been sharing all along of one to two points of growth by 2028. Thank you. The next question comes from Jack Reynolds-Clarke, from RBC Capital Markets. Please go ahead. Hi, thanks for taking the questions. Two very quick ones from me, please. So the first is on some site closures. I think you've closed a couple of smaller sites in China and the US. But I'm just wondering how much of a headwind does this have on H2 or 2025 sales growth? And the second question is just around the productivity measures you mentioned in capsules. Could you just kind of run through some details of what's involved there? Thanks. Yeah, sure, no, happy to take the question. So I think the site closure, we mentioned two site closures. One was Hayward, a small clinical site in California, which we decided to close as we now have clinical capabilities in our Portsmouth site, which include all scales on the East Coast. And we now obviously also have Vacaville on the West Coast for large scale manufacturing. So there was really no need for this older, smaller site. In terms of headwinds, I think this was fully assumed in our guidance and therefore there's no change from that and no impact from that. We've progressed well and are well on track to finish. As we said, these things take long because you do honor certain contracts and decommissioning takes time. The second site we mentioned, as you said, was Guangzhou in China. Again, a small clinical site which had DS and drug substance and drug product. Also there, I think the decommissioning and the closing down of the facilities is going as per plan. Again, the impact relatively small because this was an underutilized site, therefore not a big impact. If at all, you'll see a small tailwind on the cost base in twenty-five, as we won't have these sites in our cost base anymore. But again, two relatively close small sites, so I'd be surprised if you would see a difference. Nevertheless, the right thing to do and focus our volumes on the other sites in the network. In terms of productivity, productivity for capsules, you know, this is a highly fixed cost business. And so, what you can do is usually limited, but I think we are working obviously on reducing headcount that we have in some of our sites. If we don't need some of the lines, then we would basically mothball a few lines so that we can quickly start them up again when demand comes back, as we have seen for nutraceuticals. So, this is what we're doing there. Then a lot of work on procurement. We mentioned new ways of procuring gelatin, also on the energy front. So these are kind of the key costs of the capsules business: energy, gelatin, and people. The next question comes from Richard Vosser, from J.P. Morgan. Please go ahead. Just a question on contract momentum. Could you just give us a little bit more color on the sort of phasing, how that's going, whether contract momentum is picking up now in the second half since the first half results, and how the Vacaville closure is affecting contract momentum? Is that making it easier to sign new projects now you control it? Thanks very much. Thanks, thanks, Richard. So, I think contract momentum is certainly a positive story in twenty twenty-four. I think, especially on the commercial side, we have seen very strong interest for our offering. Of course, Vacaville is part of that. Remember before Vacaville, our large-scale assets in Biologics were basically sold out, and so we could only resell the contracts that were ending. So, Vacaville certainly has helped. In general, as you saw, we signed a larger contract earlier this week, and you know, together with Vertex and many, many other contracts that we have signed, we will have a quite substantial amount of signed contract by the end of the year. The good thing is, this is a broad-based signing success, if you want, because we have this obviously in our biologics division. We also see good signing and good contracting in small molecules, and we have good contracting in the cell and gene division. So overall, we're quite pleased with that progress, and the bigger number is obviously driven by commercial contracts, but we also see a lot more RFPs on the clinical side of things. Now, in terms of revenue, this will not be a big revenue driver. As you know, early-stage contracts are usually smaller in size, but they are very important for us to drive our portfolio and to basically create our own pipeline of future commercial molecules. So I think both sides, the early stage is picking up, and the commercial side is actually strong across all divisions. Perfect. The next question comes from Charlie Heywood, from Bank of America. Please go ahead. Charlie Heywood, Bank of America. Thank you for taking my question. It's just a slightly bigger picture question. Obviously, there's been a bit of noise around concerns on the shift to higher yields in on the mammalian side. So you adding your N-1 capacities to the Visp site, which looks like it's slightly delayed the launch timing. I guess, what prompted you to make the decision to add that technology now, given you've known about what Vacaville would offer for, you know, a few months? Was that waiting for Vacaville to close, or have you seen any significant changes in demand there, that's made you make that decision? Thank you. Thanks, Charlie. So, we had N-minus-one already available. We just decided to have even more N-minus-one ready, and make this also part of our six times twenty K facility in Visp. So I think, of course, you know, new developments, people are making use of the latest technology, and so you need both. And we believe that, you know, there is no either/or. We will need N-minus-one capacity, and we will need a regular, non-N-1 capacity as well. So this, I think, I wouldn't say is a shift in our ideas, so we were not waiting, for something special to happen. When you do these large additions, I think you need to time it well, so that you don't disturb any of the other work happening in the facility. So it's more of an engineering, you know, timing, than it is of a customer demand timing. Thank you. The next question comes from Patrick Rafaisz from UBS. Please go ahead. Thank you, good afternoon, everybody. Two quick follow-ups, please. One is on Vacaville, and Philippe, you mentioned the contribution this year will be insignificant, but is it insignificant just because of the timing of invoicing? Or, are there other reasons why there will be only a very insignificant contribution? And the second follow-up on, just on the capsules business, you mentioned the competitive pressure that continues. Can you comment on whether that has changed H2 / H1, and can you maybe make a comment about price cost for that segment as well? Yes, Patrick, let's take Vacaville and then capsules. So I think on Vacaville, you're right. I would call this timing of revenue recognition rather than timing of invoicing, but this is correlated. Yes, I think the work continues in the facility, but obviously it takes time for batches to be produced, quality released, and therefore invoiced. This is the reason there's no other reason for the minimal or insignificant impact in 2024. In terms of capsules, the pressure is mainly on, or is on the nutraceutical side of things. Remember, on the nutraceutical side of capsules, the capsule is usually not registered as part of the Drug Master File, and so changing is much easier than it is on the pharma side. And so you see that suppliers are now playing between different suppliers more than they were probably two, three years ago. But that's not a difference between H2/ H1, this is a difference from two, three years ago to now. So that's... I think the pharma side is not impacted by that because there, I think the change is more difficult and customers are more sticky to the capsules that they use. Okay. Yeah, thanks, Philippe. The next question comes from Max Smock, from William Blair. Please go ahead. ... Hi, it's Christine Rhee on for Max Smock. Two quick ones for us as well. First, you mentioned that 3Q performance was in line to deliver on your full year outlook, but just wondering if it was in line with expectations in terms of what outperformed and is it tracking ahead of what you factored into your twenty twenty-four guide, and what is underperforming? And then quickly on CHI, I believe previously you've mentioned or implied that you'd be willing to divest. Have you had any conversations along those lines yet, and are you actively exploring this idea at all? Thanks. Yes. Hi, Christine. Great to meet you. So I think in terms of over or underperformance in Q3, I think I would limit it to Q3, but, but you know, I think we've been fairly consistent this year that certainly our CHI division has been underperforming. I think we've explained the situation there, and we now see the business probably returning more into 2025. So that's certainly one area that where we see underperformance. We've also mentioned our BioScience unit, which is you know a smaller part of our business, but nevertheless we're seeing some market headwinds in that smaller part of our business. So these are probably the two places where we see underperformance and, yeah, we're happy to see that the CDMO businesses are performing well, and therefore can offset that for us to maintain our guidance. In terms of CHI, I'm not sure, you know, what conversation you would have had where we were mentioning such a move. No, there's no conversation to be had. I think we are regularly, as a company, reviewing our portfolio every year, and whenever things come out of that discussion, then, you know, we take the respective step, and we'd inform the market, but I cannot confirm any of the discussions that you alluded to. Great. Thank you so much. The next question comes from Falko Friedrichs from Deutsche Bank. Please go ahead. Thank you. Could you add a little bit more flavor on the recovery path for the BioScience business, and to what extent could we assume that this normalizes next year? Thank you. Yes, Falko, I'm happy to do so. So I think, as you maybe know, our business in bioscience is a combination of smaller businesses, niche businesses. I think, out of that, we're seeing two that are a little bit weaker. One is our media business, and the other one is our cell discovery business. So these two are dependent on very early stage work, and they've basically seen less level of investment, which also leads to less start of the need for us for our services. So I think this is normalizing. I think the business is not, it's not that it's getting worse, it's actually stabilized, but we expect the return to growth probably in 2025. Okay. Thank you. The next question comes from Paul Knight from KeyBanc Capital Markets. Please go ahead. Mr. Knight, your line is open. You may proceed with your question. Okay. We'll take the next question from Yifan Yu from HSBC. Please go ahead. Hi there, this is Rajesh Kumar for Yifan. Just thinking through, you know, the Vacaville facility, can you run us through what sort of utilization do you need to get to, to make the acquisitions return accretive for you? And when you look at acquisitions, what sort of return hurdles do you set up when you're doing such capital allocation decisions? Obviously, you have to trade with the duration, the returns, and the strategic importance. So if you can run us through the thinking behind it and, you know, what sort of revenue and utilization you need for Vacaville to become return accretive, that would be very interesting to understand. Thank you. Yes. Hi, Yifan. So, look, I think Vacaville is not so different from a capacity that we would build ourselves. Now, you can see this as kind of accelerated CapEx, because instead of building for three, four years, we've basically bought a site that is already operating. So I think that we always have the aim to run these commercial assets at high or very high utilization, and this is what we would ultimately need. I think, again, I mentioned that in the call before, but if you go back to our CMD 2023, you see the progression of such assets. So I think we are expecting high utilization. Now, this is not... We don't need max utilization to be accretive, but this is certainly the ambition we have for the site. From that point of view, this is what we're looking at. In terms of hurdle rates, again, if this is the case of Vacaville, we will always compare this to the hurdle rates we have for our internal, organic, build. So here, you know, we've had, for organic investments, we have an IRR of 15% or more, we want a ROIC of 30% at peak. This is what we use as a hurdle for organic. If we do like, in this case, an accelerated, CapEx investment, you know, you could assume that we would need this at least. That may be just as a guide. Now, obviously, there's always a strategic component. Is it at the right location, the right time, et cetera? But this is roughly the returns we would expect. Sandra, maybe we take one last question. Okay, the last question is a follow-up from James Quigley from Goldman Sachs. Please go ahead. Hello, thank you for my follow-up. It's just one on the ADC opportunity, ADC market. So you signed another contract extension recently in the space. What is the latest from a market share perspective for Lonza across the approved ADCs? Also, what are you seeing in terms of the clinical pipeline coming through? And in terms of the trend, is there a trend towards ADC customers sort of consolidating all of the four parts to one player like Lonza, or is it still pretty piecemeal depending on the drug? Thank you. Yeah, thanks, thanks, James, and good to have you at the beginning and at the end of the call. So I think, look, ADC, we're still very, very pleased with the, with both the development in the industry, but also our role, the role that Lonza is playing in that industry. We are clearly, a leader, or the leader in, in commercial manufacturing for ADC. On the clinical side of things, you know, the level where we started at, you can almost only lose share because there's a lot of new players coming in, so that's actually not a surprise. Our offering is quite unique, and, and actually is very attractive for customers. So, as you said, we have all pieces in our hand, since the, the acquisition of, of Synaffix. We also have a linker technology, own linker technology, so we get access to ADC developments very early in their life cycle, so which is a big plus. Second, we are now also adding ADC fill and finish, which will be available in 2027. So I think this is really unique and what we hear from customers that having this out of one hand is for them clearly a benefit. So, on one hand, the industry is developing well. We see the pipeline growing. I think, if you look at market data, the pipeline and the value of ADC drugs in the future keeps on growing quite significantly, and we will be playing a major role in that. So this is underlined by the contract we signed this week, by the investment that we're doing in conjugation, but also in general, mAbs that are needed for ADCs. So overall, a great story. With that, Thank you very much. Thanks a lot, everyone, for your great questions, and we look forward to talk to you mid-December again.